Store brands have steadily taken over more space on supermarket shelves and accounted for larger percentages of sales during the past 20 to 25 years, and that trend is expected to continue as more new, premium-quality, private-label products are introduced to consumers, according to Brian Sharoff, president of the Private Label Manufacturers Association, New York.
Private-label ultra-segmentation, meaning more new types of products in existing categories as well as more new private-label categories, is going to be the catalyst for increased store-brand sales in the next few years, Sharoff told SN during a recent interview. For instance, the types of private-label pasta sauce will grow from 10 to 20, pickle varieties will increase from two or three to a dozen, and flavors of rice will grow from basic brown and white to include a half-dozen exotic blends.
Sales of private-label products and the varieties offered have grown steadily over the years since store brands were introduced in the late 1970s as an inexpensive alternative in black-and-white boxes that were kept at the bottom of the supermarket shelves.
"This is Bugs Bunny running against the proverbial tortoise, but the tortoise is not stopping," Sharoff boasted.
"Currently, private-label products account for a little more than 20% of the unit share of supermarket sales, but the large national brands do not have the other 80%; they have 45%," Sharoff said. "The rest is made up of smaller brands. That is why large national brands are so scared. There is no brand loyalty anymore, and private-label sales are just going to continue to go up."
The increase in dollar sales for private-label products has not been as great as the growth of the unit shares, because national-brand products have raised prices more than private labels. Therefore, a comparison of unit shares gives a better picture of the real growth of sales in private label than a comparison of dollar shares, Sharoff explained.
The sale of store-brand products can actually be traced back to pre-Colonial times when merchants sold their best "private" products to their good customers. In more modern times, a few large chains successfully began marketing some private-label products as early as 1910. However, private label, as it is known today, was reintroduced to the public in the late 1970s.
Since then, there have been dramatic market changes in store brands about every five years. Around 1985, some chains began redesigning the packaging to be more competitive with national brands and about five years later, Loblaws showed with President's Choice that a retailer could become a producer of premium-quality, private-label products that were highly competitive with the best-established national brands, which was a big revelation for retailers, Sharoff said.
Then around 1995, mass merchandisers began using entire lines of private-label products to differentiate themselves from the competition.
The last surge in awareness came a year or two ago when retailers began aggressively expanding private-label products beyond the Center Store to the periphery to include ready meals, meat, fish, produce and other such offerings, Sharoff said. These changes are what pushed private-label sales from about 11% of unit shares 20 years ago to about 20% now.
"That is a fundamental change in the marketplace. National brands have been stuck at their 45% for years," Sharoff added. During those years, two other factors were impacting national brands, just as private-label products were improving in quality. Coupon wars demolished brand loyalty for the big national brands, and television became too expensive for a national-brand product to buy an entire show and dominate the airwaves for a half hour or hour. Instead, spot television ads became the standard.
"Those two underpinnings of branded strength fell apart just when retailers began feeling the muscle of their own brand," Sharoff said. "That process has continued. It is a horrible position for national brands to be in unless they are No. 1 or No. 2. Retailers began questioning whether they wanted to carry No. 3 and 4. Instead, they would carry the leading two brands and their own. This was another big revelation for retailers."
Private-label sales are now a $50 billion-a-year business. A recent survey by the Gallup Organization, Princeton, N.J., showed steady increases in the number of shoppers who buy store brands and in the amount of purchases they make. More than half of the people surveyed said they buy store brands in supermarkets, while 70% agreed the store brands they purchase are as good or better than national brands.
According to the survey, "There is a core group that has and will continue to increase its purchasing of store-brand products."
A particularly optimistic result of the survey for private-label manufacturers was that nine out of 10 of those surveyed said they expect to purchase the same or more store brands in the future. A majority of those surveyed said they want more private-label products to be brought to the supermarket shelves.
Satisfying that desire will be the next big step up for private-label sales, said Sharoff.
"Most of the private-label [stockkeeping units] on the shelf did not exist a few years ago," he said. "There are 30,000 SKUs on the supermarket shelves, and much of it is private label."
Another trend that is increasing the demand for a diversity of products is the growth in ethnic populations and the fact that those populations are becoming more established in the United States. Hispanics, Asians and members of other ethnic groups are shopping more in supermarkets and less in small, neighborhood stores. Products they want are beginning to appear on supermarket shelves, many under store-brand labels, creating yet another push for more diversity in the number of private-label products.
"Greater diversification is going to be the key to success in the future. Private label will become increasingly specialized and innovative. There will be more subcategories available, all of which will bring the unit share up," Sharoff said. "Private label will be particularly successful in categories where there is no dominant national brand. Many of the categories offered now did not exist 15 years ago, and the retailer's brand is right there next to the national brand."
The challenge for retailers now is to differentiate themselves from the competition, and a premium store brand with a wide range of products can help create that distinction in the shopper's mind, he advised.
Another trend helping private labels is that national brands are being forced to cut costs, as are the mega-retailers created by the many consolidations sweeping supermarkets and other industries.
"Because of private labels' better relationship with the retailers, private-label products have an advantage over national brands, particularly smaller brands, in looking for ways to help retailers to reduce costs," Sharoff said. "Anyone in private label can see our growth curve will continue to go up."
Consolidation is creating more national and international retailers. This creates logistical problems for all brands, including private label. "But because of the closer relationship with the retailer, private labels will be treated better than others," Sharoff said, in explaining why the advent of large retail chains could be an opportunity for store brands to put more pressure on the national brands.
The creation of larger chains also pressures all brands to be more creative in filling orders from retailers and financing the manufacturing process from start to delivery. The largest national brands and private labels will have an advantage over smaller brands in dealing with mega-retailers, he predicted.
One fallacy concerning store brands that has been disproved over the past two decades is that store brands do better during hard economic times.
Although store brands made their initial appearance on shelves as an inexpensive alternative to national brands, those days are long gone.
"I have always contended that just the opposite is true," Sharoff said. "Year in and year out, the growth in private-label sales has been in moving into those areas where there was no private label before. Growth has been almost entirely in quality products, value-added products, in new categories. People do not trade up from private label to national brands when the economy improves, because they never traded down in the first place. They are buying quality, private-label products."
